Undersubscription

Undersubscription:  Undersubscription refers to when the issue of new shares of an organization has fewer subscriptions or buyers than the number of shares offered. The opposite of undersubscription is oversubscription, which occurs when the demand for the shares is higher than the number of shares offered by the organization.

 When a company issues shares in order to raise capital, it is the task of the underwriting brokers to assess the current market scenario and to make sure that all the shares issued in the IPO (Initial Public Offering) are placed with the investors. Underwriters decide the price bracket of the initial issue price of the share and as such, have to balance the market demand with the number of shares offered. If the perceived price is too high, it will lessen demand and may lead to undersubscription. Similarly, if the price is too low, the demand may lead to oversubscription.

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Edited and Updated 08th March 2014

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